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Explaining Monopoly Markets

1. Choose a market or industry that you think is close to perfectly competitive. Is the market really perfectly competitive? Can absolute perfect competition exist in the "real world?"

2. Take a look at the latest annual report for the Tennessee Regulatory Authority at:

What types of industries does TRA regulate? Choose a specific company that would fall within one of those industries. Why is this firm (and others within the industry) regulated?

3. Do each of characteristics of monopoly apply to the firm you have chosen in question #2? Explain why or why not each characteristic would or would not apply to your firm.

Solution Preview

1. One market or industry that comes closest to perfect competition is the foreign exchange market. In this market there are large number of buyers and sellers; there is not entry or exit barriers, buyers can switch from one seller to another, the currencies are homogenous. It is assumed that all sellers and buyer have perfect knowledge of price, and factors that influence price. The buyers and sellers do not incur costs in making transactions. Still, this market is not perfectly competitive. When buyers and sellers operate through brokers, they incur costs. Further, all the factors that influence price may not be known to buyers and sellers. Also, it is possible that very large institutions can influence the price.

2. Tennessee Regulatory Authority regulates utilities. Specifically, it regulates energy, water, telecommunications, and gas sold through pipelines. One company that falls within these ...

Solution Summary

The answer to this problem explains monopoly markets . The references related to the answer are also included.